How to Measure the Cost of Capital

The application of internationally used theoretical models by emerging countries is like "precision measuring with a ruler, drawing with a pencil and cutting with an axe."

Monday, December 12, 2011

"According to various surveys on international financial policies and practices, the most commonly used to estimate the cost of shareholders’ resources is the Capital Asset Pricing Model , known as CAPM for short."

The CAPM is a model used to calculate the price of an asset or a portfolio of investments. For individual assets, it uses the security market line (SML) (which represents the expected return of all assets in a market as a function of undiversifiable risk) and its relation to the expected return and systematic risk (beta), to show how the market should estimate the price of a single asset, relative to the class to which it belongs. (Wikipedia)

An article by Luis Sanz in Elfinancierocr.com, shows how this model, despite the problems that occur frequently in emerging countries in providing the necessary information, can be used successfully by making the necessary adjustments.



More on this topic

Negative Outlook Confirmed for Costa Rica

November 2019

Fitch Ratings kept in B+ with a negative outlook, the sovereign debt rating, arguing that "the weaknesses in public finances are reflected and the political stagnation has prevented the timely approval of reforms that address these problems."

The new fiscal rule has not been approved, and the Congressional authorization requirement for foreign loans periodically restricts Costa Rica's financial flexibility, is another of the risk qualifier's arguments.

Risk Perception and High Financial Cost

January 2019

The governments of Costa Rica and Nicaragua will face greater challenges in obtaining financing in external markets, because of the lowering of their risk ratings by international agencies.

Arguing that Costa Rica reflects consistently large fiscal deficits, short-term financing needs because of a strong repayment schedule and budget financing constraints, Fitch Ratings reported on January 15 that the country's long-term foreign currency issuer default rating was downgraded from BB to B+.

Panama As Seen by the IMF in March 2017

March 2017

It is expected that economic growth will increase slightly to 5.1% in 2017, and about 5.5% in the medium term, supported by the expanded Canal and developing investment projects.

From a press release issued by the IMF:

Panama’s economy is expected to remain among the most dynamic in the region.

IMF: Time is running out for Costa Rica

March 2016

The institution is once again emphasizing more efficient public spending and making cuts before a fiscal adjustment comes into force, in a form that is "draconian and with emergency measures".

Making cuts and improving efficiency in public spending is once again the main recommendation of the International Monetary Fund.

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